VietNamNet Bridge – Vietnamese banks see bad debts increasing, but all of them have got higher capital safety. Meanwhile, the commercial banks believed to have high capital safety are the ones which may lose capital easily.

The Capital Adequacy Ratio (CAR) is a measure of a bank’s capital, expressed as a percentage of the bank’s risk weighted credit exposures. It is calculated by the quotient of the stockholder equity on the total risk assets.

In Vietnam, the required minimum CAR is 9 percent as stipulated in the Circular No. 13/2020 released by the State Bank of Vietnam.

At the time when the circular was issued, bankers argued that 9 percent was an overly high requirement for banks. However, most of them, except Agribank, later sighed with relief when realizing that their CARs were much higher than the required minimum levels, according to the 2011 reports.

Since late 2012, the CARs of private commercial banks have been decreasing amid the big economic difficulties. A report by the State Bank showed that the CAR reduced from 14.01 percent in late 2012 to 12.8 percent in June 2013.

According to Dr. Le Hong Giang, a banking expert, the higher provisions against risks have led to the equity decrease and then the CAR reduction. Also according to the State Bank, the stockholder equity of private banks decreased by 3.68 percent in the first six months of 2013.

However, a paradox exists that the CARs of some banks still have been increasing at the same time with the increase of the bad debts.

Navibank is an example. At the end of 2011, the bank’s non-performing loans and CAR were 2.92 percent and 17.18 percent, respectively. At the end of 2012, the figures were 5.64 percent and 19.09 percent, respectively. This meant that though the non-performing loans increased sharply, the CAR of the bank still increased.

The 2012’s finance report showed that Navibank got only VND2.4 billion in profit, while the risk assets decreased by a little. Why did the CAR still increase?

One of the reasons which pushed banks’ CARs high up is that the banks try to hide bad debts.

“If banks strictly follow the regulations on provisioning against risks, the CARs will be decreasing,” said Dr. Nguyen Tri Hieu, a banking expert.

Meanwhile, other banks have been trying to increase their own capital to settle bad debts, which has made the CARs increase.

Bao Viet and Tien Phong Banks are the examples. Both the banks increased the chartered capital in December 2012. Bao Viet Bank’s capital soared from VND1.5 trillion to VND3 trillion, while Tien Phong Bank from VND3 trillion to VND5.5 trillion.

As a result, the CAR of Bao Viet Bank has increased to 42 percent, while the index of Tien Phong Bank has reached 40.15 percent.

Commenting about the high CARs at over 40 percent of the two banks, Dr. Giang believe that the banks either cannot mobilize deposits or cannot and don’t want to lend, which in both cases means that they are not in a normal operation situation.

There is another explanation to the increasing CAR that banks now hesitate to lend money at this moment, while they tend to inject money in safe investment channels, including the government bonds, which has led to the decrease in the risk assets.

NCDT